World Bank Calls for Scrapping of OTT Tax

The World Bank has called for the scrapping of over-the-top tax-OTT. It argues that the move could boost access to coronavirus prevention messages for the vulnerable populations.

This is the first the organization, a big lender to government, is openly calling for the abolition of the tax. 

The World Bank says in its Uganda economic update 2020 report that the tax has not achieved its intended objective because “the tax is difficult to collect and easy to bypass by more technically-savvy users”

It adds that the social media tax is instead reducing “the proportion of internet users and widening digital and income inequality and should be re-evaluated”.

In 2018, the government imposed a 200 shillings daily tax on using social media. The tax was expected to raise at least 284 billion shillings in 2018/19 financial year. The government was only able to collect 49.5 billion shillings of that, with majority Ugandans preferring to use Virtual Private Networks (VPN) to bypass the tax.

Some people who could not use VPN simply avoided social media platforms.

However, with the country facing coronavirus pandemic and the suggestion that campaigns for the 2021 elections be done virtually either on social media or traditional media like radios and newspapers, the tax must be removed for wider accessibility.

“Removing the social media tax would contribute positively to the COVID-19 crisis response and encourage the use of the internet and digital technology in Uganda,” the World Bank says.

“The availability of digital services such as online shopping, food delivery, social media, instant messaging, and online entertainment allows people in self-isolation to remain connected and socially and economically active while at home.”

It added that  “governments can promote affordability by removing taxes and levies applied to specific digital platforms and services, thereby reducing transaction costs and supporting telecommunications companies in lowering prices for services that are needed during the crisis. In the long run, this is also likely to broaden the tax base.”

Meanwhile, the Bank says there is a need to reduce taxes imposed on mobile money services.

It even if the tax were removed, mobile money services would still contribute to the tax base through the 10 percent excise duty on mobile money transaction fees introduced in the 2013/14 budget year.

This would generate on average 6 percent of total excise duty revenues, the World Bank says. There is also 18% Value Added Tax is also applied to mobile money transaction fees. 

“The continued imposition of the mobile money withdrawal tax could slow the achievement of key priorities including greater financial inclusion, promotion and adoption of digital payments, and reducing the use of cash during the pandemic,” it says.